Export Control News & Alerts

The Export Control Update Newsletter
September 2007

CONTENTS

1. US-Australia Sign Defense Trade Cooperation Treaty
2. OFAC Makes Common Sense Adjustment to US Trade Embargoes
3. US Nails Dutch Guy and Son for Illegal Shipments to Iran
4. US Nails Company for Exporting Organ Transplant Equipment to Syria
5. ITAR Compliance Forces General Motors Canada to Pay
6. General Dynamics UK Says It Can Avoid ITAR
7. Defense Department Reports Its Concerns about Over-Burdensome ITAR
8. Terry Davis is Acting Director at DDTC
9. Commerce Adjusts CBW Export Controls
10. US Announces It Will Tighten Sanctions on Burma: The Bad Guys Can’t Visit the US
11. Another Group Complains about the ITAR
12. Yes, Some Commercial Aircraft Parts Require a License: Voluntary Disclosure Earns $204,000 Penalty
13. Open Your Mouth and Say “Ahh,” Open Your Wallet and Pay Cash
14. Another Valve Maker Gets Nailed
15. Export Compliance Job Posting

1. US-Australia Sign Defense Trade Cooperation Treaty

The Australia-United States of America Treaty on Defense Trade Cooperation is underway and, if ratified, would permit some license-free exporting of defense goods and services between the two countries. The important point is that if US Senate ratifies the treaty, there could be significant relaxations in US export restrictions on defense articles under the International Traffic Arms Regulations (ITAR). The State Department approved 2361 licenses and 312 agreements for Australia in 2006. The United Kingdom is the only other country to have such a treaty United States, but the US Senate has not yet ratified the UK-US treaty. The ITAR already gives certain favorable and license free treatment to exports to Canada.

The treaty would reduce US export licensing requirements when the transaction involves defense articles, equipment, spare parts, services, and technical data destined for “approved communities” or “trusted communities”. Private companies would not need licenses as long as Australia is the end-user of any security and defense projects, research, development, production and support.

“Approved communities” would include both Australian and U.S. governments and companies in both countries that have passed the qualification criteria which is still yet to be determined. This seems to point towards a government registration process to certify companies as “approved,” perhaps similar to the defense trade company registration systems in place in the United States and Canada. These approved companies must also have existing arrangements of security to be able to export license free, they must have facility clearance, business history, export licensing and compliance records, and relationships to both countries.

But don’t hold your breath, and don’t hold off in submitting that new export application for Australia. No US export requirements have changed yet, and none will for a long time. Many people are asking when the Treaty will be finalized, unfortunately, this will take some time. From the US standpoint, the first step is for the US Senate to ratify the treaty, and then the US and Australian Government must work out the actual operational details and parameters.

Australian Department of Defence Fact Sheet (PDF)

— Danielle McClellan

2. OFAC Makes Common Sense Adjustment to US Trade Embargoes

In the August 30,2007 Federal Register, the Office of Foreign Assets Control (OFAC) made several amendments to the Cuban Assets Control Regulations, Burmese Sanctions Regulations, Sudanese Sanctions Regulations, and Iranian Transactions Regulations to extend the general licensing to cover services in connection with written publications. A key element of the amendments applies to electronic publications that are already exempt from OFAC jurisdiction. The amendments extend the exemption for informational materials to also apply to embedded software that is embedded in the informational materials and used to search, view or read the electronic publications.

— John Black & Danielle McClellan

3. US Nails Dutch Guy and Son for Illegal Shipments to Iran

The U.S. Department of Justice has accused Robert Kraaipoel, a Netherlands business man, of violating the U.S. trade embargo against Iran and for making false statements on export control documents of his business. Kraaipoel’s son who owns two other companies is also charged with violating the embargo.

Kraaipoel’s company, Aviation Services International B.V., bought items from companies in Connecticut, Arizona, Florida, Kansas, and New Hampshire and then used entities in the Netherlands, Cyprus, and Dubai to pose as the end user of the goods when they were actually being re-exported to Iran.

US rules prohibit all exports from the United States to Iran. U.S. rules also prohibit shipments from the United States to a third country and then re-export them to Iran without authorization. Kraaipoel received approval from the Dutch Economic Affairs Ministry for his shipments, but not from the United States which is where the items originated. Unfortunately, the United States could care less whether the Dutch Government approves the shipment-the United States reserve the right to assert its jurisdiction over all reexports of US items forever and the United States will not defer its jurisdiction to other national government who do not implement an export approval policy consistent with the US policy.

The Dutch Government, however, apparently did cooperate with the US investigation of the reexporter. Last year alone, Aviation Services obtained over 290 items, including parachutes, aircraft parts, aircraft paint, and industrial chemicals from the United States and the reexported them to Iran. Dutch Customs officials told the U.S. officials that these American items were sent to Iranian government agencies, procurement agencies and companies doing business there.

Both Kraaipoel and his son face up to 20 years in prison, a $250,000 fine or both, to date three other Dutch businessmen have been prosecuted and received prison time for violating the international embargos.

— Danielle McClellan

4. US Nails Company for Exporting Organ Transplant Equipment to Syria

Invitrogen Corporation agreed to pay a fine of $30,000 after it voluntarily disclosed its 3 illegal exports and one attempted illegal export to Syria of tissue typing trays. These trays are used in the process of organ transplantation. The trays are used to test tissues in both the donor and the receiver to ensure that the donated tissue will not be rejected by the donor.

The company did not obtain the required export license to send the HLA Tissue Typing Trays to Syria. Invitrogen also made false statements to the U.S. Government when it filed Shipper’s Export Declarations stating that the items did not require a license.

More information:

E2006.pdf (PDF)

Tissue Typing (on Healthline)

— John Black

5. ITAR Compliance Forces General Motors Canada to Pay

Maybe if you comply with the International Traffic in Arms Regulations (ITAR) you can get sued for doing so...

General Motors of Canada Limited was forced to pay an undisclosed amount of money to six workers who complained of discrimination based on their citizenship and place of origin. The six unionized workers were all Canadian citizens or landed immigrants who also held citizenships from other countries. They all worked in a division of GM that manufactured military vehicles. GM Canada used US defense articles and technical data controlled by the International Traffic in Arms Regulations (ITAR) to produce these vehicles.

The problem is that the ITAR prohibited GM Canada from allowing the US defense articles and data to be accessed by Canadian landed immigrants (“permanent residents”) or Canadian duals nationals whose original or second country of nationality was from a country considered problematic by the ITAR. Because of this, the six workers who had citizenships in other problem countries were called into a meeting by General Motors and sent home with pay because they did not have the proper clearance to work on the U.S. vehicles from the U.S. State Department.

The six employees eventually were permitted to return to work, but General Motors did not apply for the US State Department for them to legally work on the military vehicles, so GM assigned them to alternative duties.

The Ontario Human Rights Commission brought the workers and General Motors together where they reached a settlement in July 2007. General Motors agreed to pay money to each of the six employees who had been forced to perform alternate duties because of the lack of US State Department approval.

Full article in Canadian Employment Law Today

— John Black & Danielle McClellan

6. General Dynamics UK Says It Can Avoid ITAR

General Dynamics UK (GDUK) has said that it will be able to produce items that do not contain any content controlled by the US International Traffic in Arms Regulations (ITAR). This is an important development because any items made in the world that contains any amount of US ITAR content, no matter how small the content, is subject to the complete jurisdiction of the ITAR. This means that non-US items with even tiny amounts of US ITAR content require US State Department approval prior to any and every sale or transfer of the non-US items. GDUK announced that is has found an ITAR-free solution for the United Kingdom’s Future Rapid Effect System (FRES).

More information:

About FRES (General Dynamics UK)

FRES UV offering is based ‘exclusively on European design’ (Janes.com)

— John Black & Danielle McClellan

7. Defense Department Reports Its Concerns about Over-Burdensome ITAR

Now the Defense Department is worried about the burdens the International Traffic in Arms Regulations (ITAR) imposes on its procurement.

Earlier this year the Institute for Defense Analyses (IDA) did a study on export-control barriers. The IDA found that when they interviewed commercial companies, many of the commercial companies said, “it’s just not worth doing business with Department of Defense (DOD)” because of what is called the “ITAR taint”. It seems that many commercial companies feel that once they sell a product to the DOD it will become ITAR controlled, when this happens it may become nearly impossible for them to get the proper exporting licenses, leaving them at a disadvantage in the market of creating traditional military-unique equipment.

The Deputy Under-Secretary of Defense for Industrial Policy, William Greenwalt, said, “This is just coming to the forefront, but it is not something that is a crisis yet” at a speech at the ComDef 2007 in Washington D.C. However, one of the major problems with these commercial companies not wanting to work with the DOD is that, in the long run the Department of Defense may be missing out on innovative, cutting-edge technologies needed for the military because of the burden that the ITAR leaves.

More information:

Article on Defense Daily Network (Subscribers only)

— Danielle McClellan

8. Terry Davis is Acting Director at DDTC

Terry Davis is the Acting Director for the Office of Defense Trade Controls Licensing at the State Department effective September 7, 2007. Sue Clark previously held the position. According to DDTC Ms. Clark “will continue to apply her knowledge and expertise on issues concerning the office,” although it is hard to tell what she is going to do from here.

More information:

DDTC Announcement

— Danielle McClellan

9. Commerce Adjusts CBW Export Controls

Effective September 12, 2007 The Bureau of Industry and Security (BIS) will amend the Export Administration Regulations (EAR) to reflect changes to the “Control List of Biological Agents”. This rule will amend the EAR to reflect the admission of Croatia into the Australia Group and revises the CCL entry which controls equipment that is can be used in handling any type of biological materials. Lastly, the new rule will amend the list of countries that are States Parties to the Chemical Weapons Convention, Barbados will now be joining the party.

More information:

Federal Register Notice

— Danielle McClellan

10. US Announces It Will Tighten Sanctions on Burma

The Bad Guys Can’t Visit the US

On September 25, 2007 President Bush spoke out about his outrage at the continued oppression of the people of Burma at the United Nations. He urged the United Nations and all nations to use both their economic and diplomatic leverage to help the Burmese people become free once again. Many people in Burmese have been arrested for peacefully expressing their views in opposition to the oppressive military junta.

President Bush announced that he will tighten the economic sanctions against Burma, since the issuance of Executive Order 10347 and the enactment of the Burmese Freedom and Democracy Act in 2003 the United States has been participating in an ongoing battle to keep the people of Burma free. With the newly tightened rules, members of the regime who are responsible for violations of human rights and for delaying Burma’s transition to democracy will be unable to get visas to the United States. The visa ban will also include any persons who benefit from the regime’s abuse.

Bush has also announced that the United States will review all existing policies regarding Burma and do all they can to help with humanitarian groups. Humanitarian groups are focusing on the issues of health and education in Burma at this time.

More information:

White House Fact Sheet

— Danielle McClellan

11. Another Group Complains about the ITAR

During the 58th International Astronautical Congress in Hyderabad, India, many speakers from emerging space nations all voiced a concern over the United States International Traffic and Arms Regulations (ITAR). The speakers charged that the United States ITAR is holding back growth in the industry. All of the speakers made a point to explain that both cooperation and competition were necessary to ensure growth of the space industry, and the ITAR is holding emerging space nations back.

China claimed that the U.S. policy was the largest hurdle to be faced by the growth of new actors in the industry, while India claimed that there is more risk to non-US players because of the ITAR rules

(Hmmmm, I guess the US Government is glad to hear that news, because that is exactly the intent of the ITAR. — John Black)

Hua Changzhi, vice president of China Great Wall Corp. pointed out those U.S. satellite manufacturers had lost market share in recent years, he remarked, “This is the price paid by U.S. policy”. Ray A. Williamson, research professor, Space Policy Institute at George Washington University in the United States said that change in ITAR would make it easier for the international space industry to operate, “unfortunately, given the current political situation in the United States, I don’t think ITAR regime will change for the next five to ten years”.

Executive director of Antrix Corp Ltd, the commercial arm of Indian Space Research Organization, K.R. Sridhara Murthy called for addressing certain issues at a political level especially regarding the export policies of advanced countries. Murthy also called for a unified licensing system for space services and complementary ground services and also underlined a need to change policy and regulations to facilitate easy access to remote sensing data used by many companies. Another one of his concerns was the merger of smaller companies with the “big players” in the industry, explaining that the dominant players in the industry hurt the market and consumers. The industry is also faced with the fact that the orbit and spectrum resources are in the hands of the governments.

More information:

US regulations restrict space industry growth (Earth Times)

US regulations restrict space industry growth (India PR Wire)

— Danielle McClellan & John Black

12. Yes, Some Commercial Aircraft Parts Require a License

Voluntary Disclosure Earns $204,000 Penalty

Volvo Aero Services, LP agreed to pay over $200,000 after it voluntarily disclosed 46 illegal exports of commercial aircraft equipment classified under Export Control Classification Numbers (ECCNs) 7A101 and 7A103 to various countries. Commerce replied to the Volvo voluntary disclosure of 46 illegal shipments with a letter charging Volvo with 93 violations related to the 46 exports.

More information:

E2005.pdf (PDF)

— Danielle McClellan

13. Open Your Mouth and Say “Ahh,” Open Your Wallet and Pay Cash

(I thought the Iranian leader’s smiles looked particularly bright recently. — John Black)

The Commerce Department Bureau of Industry and Security (BIS) has penalized two dental companies for export control violations. Zimmer Dental Inc and Henry Schein Inc. both illegally exported dental equipment to Iran through the United Arab Emirates (U.A.E.). The companies violated both the Export Administration Regulations (EAR) and the Iranian Transactions Regulations.

Zimmer Dental Inc. filed a voluntary self-disclosure with BIS’s Office of Export Enforcement. The company was charged with 52 violations of Section 764.2(a) of the EAR for failure to get authorization for exports to a third country intended for transshipment to Iran. Zimmer Dental Inc. was forced to pay $175,000 in civil penalties.

BIS charged Schein, Inc. with committing 25 violations. The 25 violations consisted of:

• Failing to obtain OFAC authorization for the dental supplies it exported to Iran,
• Conspiring to violate the regulations to the extent that the company “participated in a scheme in which a co-conspirator in Iran would contact Schein to arrange for the sale and export of dental equipment to Iran through the U.A.E., where the items were then shipped from U.A.E. to Iran without the required U.S. government authorization,
• Making false statements directly or indirectly to the U.S. Government in connection with the preparation and/or submission of export control documents; and
• Taking actions with the intent to evade regulations by changing the “bill to” information on its shipping documents to reference an address in the U.A.E..

Schein, Inc. also failed to retain export control documents. Schein, Inc. agreed to pay a civil penalty to $165,000 in connection with their violations.

More information:

E2000.pdf (PDF)

E2009.pdf (PDF)

— Danielle McClellan & John Black

 

14. Another Valve Maker Gets Nailed

Well, it seems to me that export compliance might be a good topic for the next annual meeting of US valve company executives and lawyers. Commerce Department law enforcement agents have found the valve industry to be a reliable source for a steady stream of violations. Just when I think maybe the stream will dry up, the valve industry offers up another victim.

Hmmm, “Valve Industry Export Control Update” has a nice ring to it...

The Commerce Department’s Bureau of Industry and Security (BIS) charged Cole-Parmer Instrument Co. for committing 10 violations of the Export Administration Regulations (EAR) for illegally exporting valves to China and Pakistan. Cole-Parmer Instrument Co. was forced to pay a civil penalty of $55,000 for violating the Regulations.

More information:

E2004.pdf (PDF)

— John Black

15. Export Compliance Job Posting

Oerlikon USA Holding Inc. is a high tech manufacturing organization. We are actively searching for a Trade Control Manager, Americas. The scope of this position is to design, install, supervise and develop a Trade Compliance System for the various entities throughout the Americas. This includes mainly Export Control, Import Compliance and Supply Chain Security. This position will report directly to the Global Head of Trade Control. Responsibilities are itemized below:

The incumbent introduces two independent management systems for both import and export compliance issues.

a.) Main elements of the Export Management System, for example, shall be:

• Supervision of compliance with Corporate Policy
• Implement & maintain EDP support for Export Control Purpose
• Classify products in accordance with applicable local legislation
• Make reliability checks of all customers (risk of diversion) and end-use verification for specific orders
• File export license application and reports to governmental authorities
• Instruct, train and assist local staff on applicable export regulations
• Update own knowledge with respect to applicable export regulations by studying relevant publications and/or attending training seminars
• Organize and keep proper documentation and records

b.) Design, install, supervise and develop a system to guarantee import compliance

c.) Supply Chain Security issue (mainly the C-TPAT program to which some entities are committed)

d.) Liaises with government agencies

e.) Serves as competence centre for all relevant regulations and give support to the legal entities

f.) Visits the legal entities on a regular basis, reviews the compliance, reports and decides about corrective action, if any.

g.) Submits license applications, classification requests etc. to BIS, on behalf of sister companies, if necessary

Qualifications:

• 8+ years in export compliance function with focus on global high tech manufacturing and capital equipment
• Multi-national company experience a must
• Knowledge of US export administration regulations, encryption licensing a MUST
• Experience with Technology Transfer licenses and offshore R&D
• *Experience with due diligence related to Mergers and Acquisitions
• Proficient with MS Office products including Word, Excel and PowerPoint
  
• Bachelor’s Degree

Oerlikon USA Holding Inc. is an Equal Opportunity Employer and welcomes diversity. For immediate consideration, please submit your cover letter and resume (including salary expectations) to

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